Skillsoft Corp. Income Taxes Disclosure

(6) Taxes

 

The following table presents the domestic and foreign components of income (loss) before income taxes (in thousands): 

 

		Twelve Months Ended January 31,
		2025				2024				2023
Domestic		$	(24,556	)		$	(197,841	)		$	(129,542	)
Foreign			(103,091	)			(167,027	)			(701,497	)
Income (loss) before income taxes		$	(127,647	)		$	(364,868	)		$	(831,039	)

 

Significant components of the income tax provision (benefit) consist of the following (in thousands): 

 

		Twelve Months Ended January 31,
		2025				2024				2023
CURRENT
Federal		$	694			$	722			$	(2,246	)
State			398				415				583
Foreign			3,159				4,664				4,716
Current tax provision (benefit)			4,251				5,801				3,053
DEFERRED
Federal			26				11				(17,734	)
State			31				(45	)			(4,285	)
Foreign			(10,047	)			(22,032	)			(22,007	)
Deferred tax provision (benefit)			(9,990	)			(22,066	)			(44,026	)
Income tax provision (benefit)		$	(5,739	)		$	(16,265	)		$	(40,973	)

 

The Company’s effective tax rate differed from the statutory rate as follows: 

 

		Twelve Months Ended January 31,
		2025				2024				2023
United States (21.0%)			21.0	%			21.0	%			21.0	%
Increase (decrease) resulting from:
US state income taxes, net of federal benefit			1.6	%			0.9	%			0.4	%
Foreign rate differential			4.9	%			1.8	%			(6.2	)%
Global intangible low-taxed income			(4.8	)%			(1.8	)%			(0.7	)%
Non-deductible expenses			(1.3	)%			0.1	%			(0.1	)%
Non-deductible officer compensation			(0.4	)%			0.0	%			(0.1	)%
Warrants			0.0	%			0.3	%			0.6	%
Unremitted earnings			(2.1	)%			(0.6	)%			0.0	%
Unrecognized tax benefit			(0.7	)%			(0.8	)%			0.2	%
Change in valuation allowance			(16.7	)%			(6.7	)%			4.6	%
Impairment of goodwill			0.0	%			(8.1	)%			(10.1	)%
Return to provision adjustment			2.1	%			0.6	%			(0.2	)%
Expired deferred tax assets			0.1	%			(2.3	)%			(3.9	)%
Stock-based compensation			(1.6	)%			(0.9	)%			(0.4	)%
Internal restructuring			0.0	%			0.0	%			1.1	%
Rate change			2.7	%			2.1	%			(0.3	)%
Other			(0.3	)%			(1.1	)%			(1.0	)%
Effective tax rate			4.5	%			4.5	%			4.9	%

 

Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of the periods presented were as follows (in thousands): 

 

			As of January 31,
		2025				2024
ASSETS
Loss carryforwards		$	97,516			$	97,726
Deferred interest expense			62,571				47,853
Reserves and accruals			7,211				5,776
Lease liabilities			1,204				2,032
Transaction costs			3,322				3,779
Capitalized research and development expenses			16,668				12,329
Other intangibles			24,323				21,197
Other			68				488
Gross deferred tax assets			212,883				191,180
Less: Valuation allowance			(178,222	)			(157,226	)
Net deferred tax assets			34,661				33,954
LIABILITIES
Intangibles			(58,207	)			(74,072	)
Property and equipment, net			(6,349	)			(4,385	)
Accrued interest			(749	)			(1,343	)
Right-of-use asset			(839	)			(1,641	)
Unremitted earnings			(5,987	)			(3,299	)
Other			(4,569	)			(1,362	)
Gross deferred tax liabilities			(76,700	)			(86,102	)
Total deferred tax liabilities, net		$	(42,039	)		$	(52,148	)

 

In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax assets and liabilities in assessing the realization of deferred tax assets. As of the periods presented, the Company had established a valuation allowance of $178.2 million and $157.2 million, respectively, against its deferred tax assets due to uncertainty about whether the deferred tax assets will be realized. The change in total valuation allowance from January 31, 2024 to January 31, 2025 was an increase of $21.0 million.

 

As of January 31, 2025, the Company had U.S. federal, state and foreign net operating loss ("NOL") carryforwards of $229.0 million, $316.1 million and $62.5 million, respectively. If not utilized, certain of the federal, state and foreign NOL carryforwards will expire beginning in fiscal 2026 with the remainder not subject to an expiration.

 

The United States enacted the Tax Cuts and Jobs Act in December 2017, which requires companies to capitalize all their research and development costs for U.S. tax purposes, including software development costs, incurred in tax years beginning after December 31, 2021. Beginning in fiscal 2022, the Company began capitalizing and amortizing research and development costs over a five-year period for domestic research and a fifteen-year period for international research rather than expensing these costs for tax purposes. 

 

The utilization of the Company’s NOL, other attributes, and credit carryforwards may be subject to a limitation due to the “ownership change” provisions under Section 382 of the Internal Revenue Code and similar state and foreign provisions. Such limitation may result in the expiration of the NOLs, other attributes, and credit carryforwards prior to their utilization. Certain attributes and carryforwards will be permanently disallowed due to historical Section 382 ownership changes and have been removed from the Company’s deferred tax assets. As of January 31, 2025, the Company has written off a cumulative $31.2 million of NOLs, deferred interest, and credit carryforwards that will expire unused due to Section 382 limitations along with the corresponding valuation allowance.

 

We provide for income taxes on the undistributed earnings and the other outside basis temporary differences of foreign subsidiaries unless they are considered indefinitely reinvested outside the United States. As of January 31, 2025, the Company has accrued $6.0 million related to undistributed earnings from foreign subsidiaries as they are not considered indefinitely reinvested outside the United States. Any basis differences not related to undistributed earnings continues to be considered indefinitely reinvested outside the United States. 

 

The Tax Cuts & Jobs Act of 2017 created a new requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income ("GILTI"), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. The Company has elected to treat the tax effect of GILTI as a current-period expense when incurred. 

 

Uncertain Tax Positions

 

As of January 31, 2025, the Company had $12.6 million of unrecognized tax benefits associated with uncertain tax positions and an additional $1.8 million of accrued interest and penalties, all of which, if recognized, would affect the Company’s effective tax rate.

 

A reconciliation of the beginning and ending balance of unrecognized tax benefit is as follows (in thousands): 

 

		Twelve Months Ended January 31,
		2025				2024				2023
Unrecognized tax benefits, beginning balances		$	14,820			$	12,320			$	14,340
Increases for tax positions taken during a prior period			—				2,399				952
Decreases for tax positions taken during a prior period			(4	)			(95	)			(210	)
Other			(110	)			196				(720	)
Decreases for tax positions settled with tax authorities			(2,080	)			—				—
Decreases resulting from the expiration of statute of limitations			—				—				(2,042	)
Unrecognized tax benefits, ending balance		$	12,626			$	14,820			$	12,320

 

The Company recognized $0.9 million, $0.7 million and ($0.3) million of interest and penalties during fiscal 2025, fiscal 2024, and fiscal 2023, respectively. The Company has accrued $1.8 million and $1.2 million for the payment of interest and penalties as of January 31, 2025, and January 31, 2024, respectively. We estimate that $6.1 million of our unrecognized tax benefits that we have accrued as of January 31, 2025, will be released within the next 12 months due to expiration of the applicable statute of limitations. 

 

The Company and its subsidiaries filed tax returns for the United States, multiple states and localities, and for various non-United States jurisdictions. The Company has identified the United States and Ireland as its major tax jurisdictions. The Company’s tax filings are subject to examination by U.S. federal, state, and various non-United States jurisdictions. The Company’s U.S. federal tax returns are open for years after January 31, 2021.